With the repeal of a Depression-era federal law that prohibited banks from selling stocks or insurance, two new companies have commenced operation in San Diego to help community banks provide those products to customers.
“What we’ve done is we put together a turnkey package to deal with all of the federal and state compliance issues, which are the biggest hurdles for a community bank that wants to get into the business of stocks, bonds and insurance,” said Harold Neal Schaffer, president and CEO of Community Bankers Insurance Agency LLC and Nations Insurance Services LLC.
Nations is the sister company and exclusive provider of products and services to CBIA, Schaffer said.
“Major national banks average 40 percent of their revenue from non-interest income that’s generated from these kinds of services through the bank or bank holding company,” Schaffer said.
In contrast, community banks get less than 8 percent of their income from sources other than interest on the money they loan, he said.
Schaffer said his group has been working on the concept for about four years now.
“It’s no coincidence we came out of the ground within three weeks of the passage of (the) Graham Leach Briley Act,” Schaffer said.
That measure, signed into law in November 1999, repealed the 1930s vintage Glass Steagal Act, which prohibited banks, insurance companies and stock brokerages from engaging in each other’s business.
– 25 Banks Have
Invested In CBIA
Gary Findley, an Orange County attorney and publisher of The Findley Report, a banking newsletter, said 25 California banks have already invested in CBIA.
Findley, who is also an investor in CBIA, said three San Diego banks, whose names he couldn’t disclose, were in negotiations with CBIA. Two of those may buy an equity stake in it, he said.
Business Bank of California, based in San Bernardino, Humboldt Bancorp of Eureka and United Security Bank of Fresno are among the 25 banks that have invested in CBIA.
The two companies now have seven people working for them, not including members of the board of directors or the independent agents working around the state to sell the CBIA service package to community banks.
Electric Insurance Co., an affiliate of General Electric Co., will be providing car and homeowner’s insurance through CBIA.
New York Life Insurance Co. and Chubb Insurance Group of Warren, N.J., a company that provides property protection, and kidnap and ransom insurance for banks, are also participating, Schaffer said.
– National Sales Force
A Favorable Feature
Robert Hebron, vice president of life insurance marketing for New York Life, said his company’s approximately 9,900-agent national sales organization was one of the things that attracted CBIA to New York Life.
“Our agents add a lot of value compared to what the banks could develop themselves from scratch,” Hebron said.
Mike Sullivan, national marketing manager for Electric Insurance Co. of Beverly, Mass., said teaming up with CBIA was a good way to help offer his company’s auto and homeowner’s insurance programs through the client bank’s Internet site, he said.
Raymond James Financial Services of St. Petersburg, Fla., is providing stock brokerage services, Schaffer said.
Auto and homeowner’s insurance will be sold through a client bank’s Web site and an 800 telephone number. A dual employee of the client bank and the stock brokerage will sell securities at a desk in the bank, he said.
Independent life insurance agents of New York Life will call on bank customers who have authorized the bank to release their telephone numbers.
– Insurance Brokerage
Plans Various Offerings
Insurance brokerage Fred A. Moreton & Co. of Salt Lake City will provide employee benefits, commercial property and casualty insurance and bonding to the banks and commercial property and bonding to the bank’s business customers.
Chubb Insurance Group will be the insurance provider for the bank program for property and casualty and bonds, said Dennis Williams, a sales executive with Fred A. Moreton & Co. who helped organize the program.
Shaffer said only California banks are being solicited for business. By the fourth quarter of this year, lenders across the United States will also be canvassed.
Susan Banashek, spokeswoman for the California Bankers Association, said the start-up of CBIA is just one example of the major trend by banks, insurance companies and stock brokerages to get involved in each other’s business.
“U.S. Trust of New York just merged with Charles Schwab,” Banashek said. “That’s a real good example of the crossovers in the industries right now.”
She said she knew of several insurance and brokerage companies in San Diego County that were in the process of obtaining bank charters. Banashek said, however, she didn’t know of any other company that was offering the type of service CBIA was providing.
